When starting a company in Nepal or elsewhere, two critical legal documents govern its formation and operations: the Memorandum of Association (प्रबन्धपत्र) and the Articles of Association (नियमावली). These documents serve as the foundation for a company’s structure, purpose, and internal management. This article provides an in-depth explanation of both documents, their importance, key components, and practical tips for drafting them. Written in simple language, it aims to help entrepreneurs, business owners, and students understand these concepts clearly.
What is a Memorandum of Association (प्रबन्धपत्र)?
The Memorandum of Association (MOA), known as प्रबन्धपत्र in Nepali, is a public document that defines the scope and objectives of a company. It acts as the company’s constitution, outlining its relationship with the outside world, including shareholders, creditors, and other stakeholders. The MOA sets the boundaries within which the company must operate.
Purpose of the MOA
- Defines the company’s objectives and scope of activities.
- Informs shareholders and the public about the company’s purpose.
- Ensures the company operates within legal limits.
Key Clauses of the MOA
The MOA typically includes the following clauses, as required by Nepal’s Companies Act, 2063:
- Name Clause (नाम खण्ड)
- Specifies the company’s name, which must end with “Limited” for public companies or “Private Limited” for private companies.
- Example: “ABC Trading Private Limited.”
- The name must be unique and approved by the Office of Company Registrar (कम्पनी रजिष्ट्रारको कार्यालय).
- Registered Office Clause (दर्ता कार्यालय खण्ड)
- States the address of the company’s registered office in Nepal.
- This is where official communications are sent, and legal documents are maintained.
- Objective Clause (उद्देश्य खण्ड)
- Lists the primary and ancillary objectives of the company.
- Example: For a trading company, objectives may include “import and export of goods” or “retail sales.”
- The company cannot undertake activities outside these objectives.
- Liability Clause (दायित्व खण्ड)
- Defines the liability of shareholders, usually limited to the unpaid amount on their shares.
- For private companies, it may state “liability is limited by shares.”
- Capital Clause (पूँजी खण्ड)
- Details the authorized capital (अधिकृत पूँजी) of the company and the division of shares.
- Example: “The authorized capital is NPR 10,00,000 divided into 10,000 shares of NPR 100 each.”
- Association Clause (संघ खण्ड)
- States that the subscribers (founders) agree to form the company and take shares.
- Includes the names, addresses, and signatures of the subscribers.
Importance of the MOA
- Legal Requirement: Mandatory for company registration in Nepal.
- Public Document: Available for public inspection at the Office of Company Registrar.
- Guides Operations: Ensures the company stays within its defined objectives.
What is an Articles of Association (नियमावली)?
The Articles of Association (AOA), or नियमावली in Nepali, is an internal document that outlines the rules and regulations for managing a company’s day-to-day operations. While the MOA defines “what” the company can do, the AOA explains “how” it will do it.
Purpose of the AOA
- Governs internal management, such as board meetings, share issuance, and dividends.
- Clarifies the rights and duties of shareholders, directors, and officers.
- Acts as a contract between the company and its members.
Key Provisions of the AOA
The AOA covers various aspects of company management. Common provisions include:
- Share Capital and Shares (पूँजी र शेयर)
- Rules for issuing, transferring, or forfeiting shares.
- Example: Procedures for transferring shares in a private company.
- Directors (सञ्चालक)
- Appointment, powers, duties, and removal of directors.
- Example: “The board shall consist of at least two directors for a private company.”
- Meetings (बैठक)
- Rules for conducting general meetings (साधारण सभा) and board meetings (सञ्चालक समिति बैठक).
- Includes quorum, voting procedures, and notice periods.
- Dividends and Reserves (लाभांश र सञ्चित कोष)
- Policies for distributing profits and setting aside reserves.
- Example: “Dividends shall be declared at the annual general meeting.”
- Accounts and Audit (लेखा र लेखापरीक्षण)
- Procedures for maintaining financial records and conducting audits.
- Ensures compliance with Nepal’s accounting standards.
- Winding Up (कम्पनी समापन)
- Rules for dissolving the company if it becomes insolvent or ceases operations.
Importance of the AOA
- Internal Governance: Provides a framework for smooth operations.
- Flexibility: Can be amended by shareholders, subject to legal approval.
- Binding Agreement: Enforceable on the company and its members.
Differences Between MOA and AOA
| Aspect | Memorandum of Association (प्रबन्धपत्र) | Articles of Association (नियमावली) |
| Purpose | Defines the company’s scope and objectives. | Governs internal management and rules. |
| Scope | External relations (with public, creditors). | Internal operations and governance. |
| Content | Name, objectives, capital, liability, etc. | Shares, directors, meetings, dividends. |
| Public Access | Public document, accessible to all. | Internal document, limited access. |
| Amendment | Difficult; requires court approval in Nepal. | Easier; can be amended by shareholders. |
| Supremacy | Supreme document; AOA cannot contradict it. | Subordinate to MOA. |
Tips for Drafting MOA and AOA
For Memorandum of Association (प्रबन्धपत्र)
- Be Clear and Specific: Clearly state the company’s objectives to avoid legal disputes.
- Example: Instead of “general trading,” specify “trading in agricultural products.”
- Comply with the Law: Ensure the MOA adheres to Nepal’s Companies Act, 2063.
- Choose a Unique Name: Verify name availability with the Office of Company Registrar.
- Plan for Future Growth: Include broad but relevant objectives to allow flexibility.
- Hire a Legal Expert: Consult a lawyer to ensure accuracy and compliance.
For Articles of Association (नियमावली)
- Tailor to Your Needs: Customize the AOA based on the company’s size and structure.
- Example: A small private company may need simpler rules than a public company.
- Define Roles Clearly: Specify the powers and duties of directors and shareholders.
- Include Dispute Resolution: Add clauses for resolving internal conflicts, such as mediation.
- Keep It Flexible: Draft rules that can be amended as the company grows.
- Review Regularly: Update the AOA to reflect changes in laws or business needs.
Common Mistakes to Avoid
- Vague Objectives in MOA: Unclear objectives can lead to legal challenges.
- Ignoring Legal Requirements: Non-compliance with the Companies Act can delay registration.
- Copying Templates Blindly: Generic templates may not suit your company’s needs.
- Overcomplicating AOA: Complex rules can confuse shareholders and directors.
- Not Consulting Experts: Skipping legal advice can result in errors or penalties.
Legal Framework in Nepal
In Nepal, the Companies Act, 2063 (2006) governs the preparation and registration of MOA and AOA. Key points include:
- Both documents must be submitted to the Office of Company Registrar during company registration.
- The MOA and AOA must be in Nepali or English, with certified translations if needed.
- Amendments to the MOA require approval from the Registrar and, in some cases, a court.
- The AOA can be amended by a special resolution (विशेष प्रस्ताव) passed by shareholders.
Practical Suggestions for Entrepreneurs
- Understand Your Business: Before drafting, clarify your company’s goals, structure, and operations.
- Engage Stakeholders: Discuss the MOA and AOA with co-founders and investors to align expectations.
- Use Professional Services: Hire a company secretary or lawyer to ensure compliance.
- Educate Your Team: Ensure directors and shareholders understand the rules in the AOA.
- Keep Records Safe: Store copies of MOA and AOA securely for future reference.
The Memorandum of Association (प्रबन्धपत्र) and Articles of Association (नियमावली) are the backbone of a company’s legal and operational framework. The MOA sets the company’s purpose and scope, while the AOA governs its internal management. By drafting these documents carefully, businesses in Nepal can ensure compliance, clarity, and smooth operations. Entrepreneurs should seek professional guidance, tailor the documents to their needs, and review them regularly to adapt to changing circumstances. With a well-crafted MOA and AOA, your company can build a strong foundation for success.
